Westover Capital - Where Have All the Stock Splits Gone?

Where Have All the Stock Splits Gone?

– Chip Sawyer, CFA®, Chief Investment Officer

When I began my career in this business in 1997, the internet stock bubble was still expanding, and the retail (individual) investor was participating in a big way. The previous year, 1996, saw the birth and subsequent explosion of online trading with companies like Charles Schwab, E-Trade, and the three companies that would eventually become TD Ameritrade leading the way.

Actually, this was the second wave for retail investors to discover the excitement, rewards, and risks found in equity investing. The first wave occurred in the 1980s after the SEC banned the practice of fixed brokerage commissions, making investing more affordable for smaller investors. To appeal to this growing new class of investors in the ‘80s and late ‘90s, publicly traded companies commonly split their stock. Stock splits don’t affect the overall value of the company, but they lower the price per share and make it easier for smaller investors to purchase.

According to data from S&P Dow Jones Indices, there has been an average of 44 stock splits per year since 1980. After the demise of fixed commission prices, there were 114 splits in 1986, and from 1998 to 2000, there was an average of 91 splits per year.

The growth of ETFs has had a significant impact on the frequency of stock splits, and thus on the average price an investor pays for one share of stock.

From the wreckage of the internet bubble burst in the early 2000s, there emerged a new instrument to entice the retail investor: exchange-traded funds (ETFs). These funds can be described as a “basket of securities” based on a particular exchange. The growth of ETFs has had a significant impact on the frequency of stock splits, and thus on the average price an investor pays for one share of stock. Rather than buy shares of stock in individual companies like they did in the 1980s and 90s, small retail investors now buy ETFs.

Westover Capital - Where Have All the Stock Splits Gone?The Impact of ETFs

Due to the rising popularity of ETFs, companies no longer cater to the individual investor, choosing instead to court the ETF provider. You can see this phenomenon in the number of companies executing stock splits. In the past ten years, the average number of splits per year has plummeted from 44 on average to less than eleven. Last year, there were a grand total of five.

The impact has been remarkable, especially for investment portfolios with less than $100,000 in assets. Fifteen years ago, the average price of a share of stock of an S&P 500 company was $36.53. Today, that average is $117.63, an increase of over 300%. This new high-price environment makes it difficult for smaller accounts to properly invest in individual companies. For example, one share of Amazon in a $10,000 account would comprise nearly 20% of the account. Add in a share of Google/Alphabet, and that’s another 12%.

Fifteen years ago, the average price of a share of stock of an S&P 500 company was $36.53. Today, that average is $117.63, an increase of over 300%.

At Westover Capital, we are core believers in diversification. Whether a large account or small, we will always use the appropriate investment vehicles to maintain diversification while managing tax consequences.

Please don’t hesitate to reach out to us with any questions about ETFs and the evolving state of investing and markets.

© Westover Capital Advisors, LLC. All rights reserved.

Westover Capital - How Consolidation Can Simplify Your Financial Life

How Consolidation Simplifies Your Financial Life

– by Matt Beardwood, CFP®, Director of Wealth Management

In a frenzied, fast-paced, and rapidly-evolving world, there has been a growing movement in recent years that advocates for simplifying your life. Books, articles, and experts on television all seem to agree that doing things like reducing clutter, managing a pared-down schedule, and placing your focus on the people and things that are most important to you can make you healthier, happier, and reduce your stress.

“In character, in manner, in style, in all things, the supreme excellence is simplicity.”
Henry Wadsworth Longfellow

This principle applies to people from all walks of life. When Microsoft founder Bill Gates was asked what he learned from fellow billionaire Warren Buffett about managing his time, he said it was the importance of giving himself time to think. “You know, I had every minute packed and I thought that was the only way you could do things,” Gates told interviewer Charlie Rose. To prove the point, Buffett produced a small paper calendar that was almost completely blank, emphasizing the importance of managing the demands of a very high-profile position.

The Elegance of Simplicity

No matter where you fall on the economic spectrum, the elegance of simplicity is especially true when it comes to your finances. Credit cards are a great example. With one or two, you can easily track the due date, avoid late fees, ensure favorable and consistent interest rates, and, perhaps most importantly, protect your credit score. With eight or ten cards, however, the task becomes a lot more complicated and can take up time (and money!) that you’d much rather spend doing other things.

Westover Capital - Consolidate to Simplify Your Financial LifeDifferent challenges and opportunities present themselves as you grow and accumulate wealth. In addition to checking and savings accounts, you may also have multiple investment accounts, loans, credit accounts, and trusts that are managed in different places by different people. The effective stewardship of these assets is critical, especially with instruments like IRAs (Individual Retirement Accounts) and 401(k) accounts that are accompanied by very specific tax and legal requirements.

The Advantages of Consolidation

It’s not unusual to have multiple retirement accounts spread across different companies. In fact, we often help clients ensure that they’re in compliance with IRS rules regarding these types of accounts. However, there are some clear advantages to consolidating retirement accounts and simplifying this process.

  • Efficiency – Consolidating several retirement accounts into one is the most efficient way to manage these assets. Instead of calculating contributions and RMDs (Required Minimum Distributions) across several accounts, which creates the possibility of missing one or more, everything is in one place.
  • Savings – If you have one or more advisors managing multiple retirement accounts, you are likely paying separate fees for each account and the activity it generates. Consolidation can save you money on both management and transaction fees. Not only that, but if you don’t revisit accounts from previous companies or positions, your investment elections will remain the same as when you left them. Just like your wardrobe, you probably don’t want your portfolio to reflect choices from the late nineties!
  • Reporting – One of the biggest advantages to combining your retirement accounts into one account is consolidated reporting. It’s difficult to get a full and complete financial picture if you’re trying to interpret it across several different reports and accounts.
  • Compliance – As we’ve mentioned, the IRS is very specific about the treatment of both IRAs and 401(k) accounts. There are different rules that apply to each, and special circumstances that must be taken into consideration to avoid additional taxes and penalties. With a single account, you can be assured that you’re not exceeding contribution limits and that you’re taking the appropriate distributions every year.

You may be wondering what happens when the confusion created by multiple retirement accounts causes an error or breaks IRS rules. The consequences for not taking the correct RMD every year can be costly, with penalties of up to 50 percent. So, for example, if your RMD is $20,000, you’ll be hit with a $10,000 penalty in addition to the tax you already owe.

If you’ve made an honest mistake by not taking the proper RMD, you can correct the error and petition the IRS to waive the 50 percent penalty. In most cases, they will do so.

Fortunately, there are remedies for this situation. The rules accompanying retirement accounts are in place to prevent tax avoidance. If you’ve made an honest mistake by not taking the proper RMD, you can correct the error and petition the IRS to waive the 50 percent penalty. In most cases, they will do so. However, you’ll still be required to amend tax returns for any prior years that were affected by the error. Needless to say, it’s much easier to consolidate your accounts than to wrangle and trade piles of paperwork with the IRS!

At Westover, we help clients simplify their financial lives. If you’re feeling overwhelmed or concerned by multiple accounts and points of contact for your assets, we’re here to help.

© Westover Capital Advisors, LLC. All rights reserved.

Westover Capital Advisors

Westover Luncheon Series: Dr. Reid Huber

The September 2018 Westover Luncheon Series featured Dr. Reid Huber, Executive Vice President and Chief Scientific Officer of Incyte Corporation, a bio-pharmaceutical company headquartered in Wilmington. Below is a replay of the luncheon.

Westover Capital Advisors - Markets, Migrations and Wildlife

Markets, Migrations and Wildlife

– by Murray Sawyer, JD, President and CEO

At Westover, we’re believers in excellence – in the advice and services we provide our clients, and in all we do. We recognize and appreciate others who do the same. To that end, one of our favorite books, and one we often gift to clients to welcome them to the fold, contains superb wildlife and nature photos by Thomas Mangelsen, the renowned American naturalist and wildlife photographer. You may not recognize his name, but you will likely recognize his work.

A native of Nebraska, Tom has traveled the world for over 40 years observing and photographing the Earth’s last great wild places. Each of his photographs tells a story. The one below – “Catch of the Day” – is referred to by many as the most famous wildlife photograph in the world. You may remember this photo from the cover of Tom’s book, “Images of Nature: The Photographs of Thomas D. Mangelsen.”

Westover Capital Advisors - Thomas Mangelsen's 'Catch of the Day'

In a recent episode of 60 Minutes, Anderson Cooper visited Tom. During the segment, Cooper went to Tom’s home along the Platte River to witness one of America’s great annual wildlife migrations, that of ducks, geese, and cranes as they soar through this valley going south for the winter.

Mangelsen’s art and his knowledge of natural history highlight the importance of maintaining a balanced and diverse ecosystem. Similarly, at Westover, we believe in constructing balanced investment and retirement portfolios that will withstand the rigors of market downturns and still participate in market upturns. As with the geese, our markets could migrate southward in time.

Just as Mangelsen puts his wildlife front and center in his photos, we also believe in providing advice and constructing wealth advisory plans which meet our clients’ needs for retirement, tax planning, Roth conversions, estate planning, charitable gifting, and more. We do this, always, with our clients’ interest, not ours, at the forefront of the picture.

As we go forward, we will continue to provide you with experiences, information, and services which are above the ordinary. We invite you to let us know when we succeed.

© Westover Capital Advisors, LLC. All rights reserved.

Westover Capital - Thoughts on a Potential Trade War

I Won’t Ride the Trump Train into a Trade War

– by Murray Sawyer, J.D., President and CEO

At Westover, our clients often share articles with us on topics that engage and inspire, or from time to time, challenge or support our best thinking. We believe this dialogue and discussion better inform all of us as thinkers, decision-makers, and stewards of our client’s financial resources.

Recently, a client shared an opinion piece from the Wall Street Journal, “I Won’t Ride the Trump Train into a Trade War.” The article reinforces some of our own opinions about the Trump economic agenda; specifically, that corporate and individual tax reforms, along with the elimination of burdensome regulations, have been tremendous positive forces for U.S. job growth, increased corporate earnings, and expansion of Gross Domestic Product (GDP).

As we’ve mentioned many times and as economic history has shown, these “beggar-thy-neighbor” protectionist policies do not work and often lead to escalating, retaliatory tariffs that can spill over into economic recession.

Westover Capital - Thoughts on a Potential Trade War

However, recent trade and tariff policy initially thought to be de minimis both in its size and scope has grown and felt more like a device used to fulfill election campaign promises rather than sound economic practices. As we’ve mentioned many times and as economic history has shown, these “beggar-thy-neighbor” protectionist policies do not work and often lead to escalating, retaliatory tariffs that can spill over into economic recession.

In our opinion, the Trump administration is reverting to a policy that is dangerous for the U.S. economy and the international commerce system. We continue to monitor the short and long-term effects of these policies on U.S. and global markets as well as on our client portfolios. We welcome your questions and thoughts.

© Westover Capital Advisors, LLC. All rights reserved.

You Didn’t Build That

– by Murray Sawyer, J.D., President and CEO

I need to share a little ‘60s and ‘70s autobiographical background to give my subsequent story context. In this recounting there is nothing I mean to imply about my experiences or events that are either good or bad. They are simply mine, and thus became the lenses through which I have subsequently experienced, seen and interpreted the world.

We All Start Somewhere

Randy and I were married while I was a junior in college. With that event we were pushed from the shores of familial financial support into a lifeboat kept afloat solely through our use of the oars we found on the boat. Our initial honeymoon abode was a modest, furnished trailer on Airport Road in Chapel Hill, NC. In order to support us and our daughter and while also taking a full course load at UNC, I worked early mornings and late evenings as a janitor for Saffelle Cleaning Service, starting most days at 5AM and ending around 11PM.

Upon graduation I went directly to law school at Vanderbilt in Nashville where another daughter promptly arrived. Scholarship assistance and government loans covered tuition obligations. To support my ever-growing family, and carrying a full course load, I also worked thirty hours per week for the state government in their planning and budget office. On weekends I took pictures of houses insured by a local insurance company. All the while Randy dutifully took in a handful of my fellow law school students’ infants at “Sawyer’s Day Care Service.”

Returning to my hometown Wilmington in 1971, I soon left a large corporate law firm, Richards Layton & Finger, for the Delaware Attorney General’s office. Then at the age of thirty-one on January 1, 1978 I opened shop as a solo practitioner. My law “office” consisted of two window-less rooms totaling 300 square feet.

I had a mortgage, car and law school loans to repay, family mouths to feed. By then our third child was almost three. Our safety net was the $1,250 that was squirreled away in our savings account. We were about to embark on another life adventure.

Six months later Randy announced that she wanted our children to attend a private day school rather than the public one. The educational opportunities and intellectual challenges would be far greater for them, she argued. Intuitively I knew I needed to find another income stream and fast.

Thinking about my legal background, I decided that Delaware’s reputation as the “Corporate Capital of the World” offered a potential avenue for that second revenue stream. Accordingly, I started American Incorporators, Ltd., (AIL for short), a corporate filing and incorporation service. It’s initial office: My legal assistant’s second right hand desk drawer. And yes, over the years the profits from AIL did cover tuition costs for all three children and all the way through college! That company now provides corporate filing services in all 50 states for clients who live in every state in the U.S. as well as all over the world.

Although I had left the Attorney General’s office I still had many friends who were police officers. So, in response to Randy’s we-need-tuition-money plea, and as a hedge against the possible failure of AIL, I also started a civil investigation business at the same time. I called it Professional Investigators, Ltd. (PIL for short). Its business purpose was to provide professional, trained investigators — my police officer friends who would work on their own time– to my fellow lawyers who were in the need of witness interrogations, or needed car crash measurements, or required fact or forensic investigations done for their trial cases.

The main difference between the two businesses was that when not practicing law I focused just about all my time and energy on AIL while PIL withered on the vine. Sure enough, it soon died a quiet death. The point is this: both the success of AIL as well as the failure of PIL can be laid at my feet. That wasn’t my only whiff.

Tom, my best friend from North Carolina, called me about this same time. He lived in New Jersey and wanted to exit the corporate world to buy and run a bar. Neither one of us knew the first thing about the bar business, and the TV reality show, Bar Rescue, had not yet been created. In retrospect, we were enthralled with a quixotic, romantic and naïve idea, but at the time I was sure of its success. Would I try to raise the funds necessary to buy one in return for a fifty percent ownership stake in that venture? Absolutely, I said.

Jumping onboard, I soon had raised enough capital from my lawyer-friends that Tom and I were able to buy a bar we christened Nicky’s Pub. It sat on the White Horse Pike in Cherry Hill, New Jersey, about 90 minutes from Wilmington. Tom quit his corporate job. Most weekends I would drive to Nicky’s to help Tom run our place — man the cash register, draw a beer, flip a burger, clean out the men’s room. There remained however this one issue: we could do the menial stuff, but neither of us knew a damn thing about nuts and bolts of really running a bar.

Failure taught me a valuable life lesson: Stick to what you know.

Sure, enough we ran it into the ground in 18 short months. Turns out it was seriously undercapitalized and embarrassingly mismanaged by us. We were two plumbers who didn’t know a hose cutter from a pipe wrench. While I was ultimately able to pay back my investors that failure taught me a valuable life lesson: Stick to what you know.

The Right to Have a Go

This brings me to the present.

Two weeks ago, we hosted Westover’s Eighth Annual Investors’ Summit. James Pethokoukis, the DeWitt Wallace Fellow of the American Enterprise Institute, was our featured speaker. He addressed the importance of GDP growth. Specifically, he queried whether our current economy can grow at the 3 percent rate which had been the “old historic norm” going back to the 1950s up until 2008, or whether we are constrained to grow at the “new normal” of 2 percent, which has been the average from 2008 through 2016.

If we grow at 3 percent, then living standards for our citizens double in just 20 years, but if our economy grows only at 2 percent, we will see those same standards double only once every 35 years.

Pethokoukis noted that our free enterprise system has generated more wealth than that realized from any other civilization or government system. He made the point that this has been done in the U.S. without relying on “State-sponsored 5-year plans, government-planned industrial policy, or other onerous top-down directives.” Think Russia, China and the EU respectively.

He said the key to our success was bound up in what he called our “culture of economic freedom.” It’s what one economist-philosopher, Deirdre McCloskey, called quite simply, “the right to have a go.”

Pethokoukis cited America’s “ethic of entrepreneurialism.” He traced its lineage from the great companies of our past to the giant firms of the present. From Carnegie’s steel and Rockefeller’s oil to Bill Gates’ Microsoft, Steve Job’s Apple and Jeff Bezos’s Amazon.

From where I sit, it’s the spirit of entrepreneurialism that fuels our economic engine. I believe this is true not only thanks to the genius of the brilliant founders of those few large companies, but also because of the hearts, minds and sweat of millions of small business owner Americans. They diligently work, invent and produce goods and services in every corner of our nation every day of the year. In America we have that entrepreneurial energy thanks to our free enterprise system and our system of democracy.

From where I sit, it’s the spirit of entrepreneurialism that fuels our economic engine. I believe this is true not only thanks to the genius of the brilliant founders of those few large companies, but also because of the hearts, minds and sweat of millions of small business owner Americans.

Sadly, and much to my surprise, Pethokoukis also warned of a worrisome demographic shift in attitudes by our young people. He said that “more than 30 percent of the millennial generation — those roughly 35 and younger today — say that democracy is not essential in our society.” He also noted “some 42 percent of the millennials say capitalism is not essential.” My own research led me to a Harvard University poll with similar results. Conducted in 2016, it found that 51 percent of 18-29-year-olds in the U.S. said they oppose capitalism while only 42 percent express support.

Say what?

Bhutan or Boston

To my surprise, I experienced what I took to be a misunderstanding of entrepreneurial capitalism in the observations of a fellow Baby Boomer two days later.

It happened when I was working out on a stationary bike, exercising my brand-new titanium left knee. A longtime friend came up behind me and tapped me on the shoulder. We go way, way back . . . more than fifty years . . . back to our days together in high school. His business life was experienced as a manager of a very large company headquartered in Wilmington.

“Bill’s” shoulder tap led to a philosophical discussion. My buddy advised that in a happiness survey measuring one country against another that the U.S. was somewhere in the middle of the pack on something he called the “Nations’ Happiness Scale.” Smiling somewhat smugly, he told me Bhutan was at the top of the list.

I subsequently did a little research on Bhutan and Bhutan has some good things going for it.

In case you’re not up on your geography, it is a small, landlocked country in South Asia in the Eastern Himalayas, bordered by China, India and Tibet. It’s slightly larger than Maryland. It has a population of approximately 750,000, making it smaller when measured by that metric than Delaware.

Its government is a constitutional monarchy. Buddhism is the predominant religion.

Per capita income is $8,100, which is very good for that region. Twelve percent live below their poverty line compared to 15 percent here. That’s also good. On the not-so-good side we find these statistics: Life expectancy is 9.7 years less than that of United States citizens. The Bhutanese average 5 more children per 1,000 people than we. Thirty-four children per 1,000 are likely to die in infancy compared to six in the U.S.

Compared to its South Asia neighbors, Bhutan ranks first in economic freedom, ease of doing business and peace; second in per capita income; and is judged the least corrupt country in the region as of 2016 according to Wikipedia.

Bill reminded me of the “the pursuit of happiness” phrase in the Declaration of Independence, suggesting that in the 21st century we had failed our forefathers’ test. He listed a litany of problems we have in the United States and in Wilmington: excessive shootings and murders in Wilmington; poor national and local educational outcomes; middling health care; seemingly, intractable political views in Washington, both from the left and right.

I thought about his thesis for a few seconds as I continued to pedal.

With the thought of those millennials who don’t believe in capitalism, free markets or democracy ringing in my ears, I asked “Would you like to move to Bhutan?” He stared blankly ahead and after a few seconds gave me a non-answer.

I continued to pedal.

Bhutan is one of the “happiest” nations in the world. But would you move there?

One exchange led to another and then he said, “Remember President Obama said ‘If you’ve got a business, you didn’t build that. Somebody else made that happen.’”

That was my hot button. I was racing so fast Dale Earnhardt would have needed a lead foot just to try to keep up.

“Bill, I acknowledge all of us stand on the shoulders of those who came before; you and I had the good fortune to be born in the United States; we are the sum total of our heritage, experiences and the opportunities we have been afforded and taken. I could never have achieved what little I have without the assistance I was given by my parents, the education I was afforded, the financial assistance I received from Vanderbilt and Uncle Sam. But I, and I alone, took the risk to build my law office from those tiny two rooms. I was the one who took the risk to start AIL. Nobody else made those things happen. To coin a phrase, I was the one who ‘built that.’”

I reminded him of the Pethokoukis view of the American ethic and belief in the importance of entrepreneurial exceptionalism.

Offering a disapproving smile, he suggested that my entrepreneurial spirit wasn’t the reason for my success, but rather our society’s and government’s “collective benefits” were, coupled with my good fortune in being born here. They had been what he called the senior partners in each and every one of my successes, while I was merely their junior associate.

That was my Lexington-Concord moment.

“Were they also my partners when I failed?” I knew I’d brought him up short. He looked shocked. Then I told him the story of PIL, one he didn’t previously know. I spared him the story of Nicky’s Pub. “Free market capitalism gives all of us the right to succeed and also to fail. Can I recover the loss of money and time I invested in PIL from society or the government, my so-called senior partners?” He hesitated. Didn’t give me an answer.

And in that instant, I understood our difference. He’d focused on the end result while ignoring the risks which attend any undertaking in the competitive, free market world in which we find ourselves. Success might arise from the initiation of an enterprise, but so might failure.

Some believe in the power of the collective and ascribe to it the eternal flame of success and happiness. Others believe in the primacy of the individual, his or her spirit, and willingness to undertake new ventures. Me? I’ll take the system we have here in the U.S. For better, for worse. For richer, for poorer. For success, for failure. And on a Happiness Scale of 1 to 10, put me down as an 11 for what we have here.

I’ll end with this: Call me an optimist. I think those millennials will come around eventually.

© Westover Capital Advisors, LLC. All rights reserved.

2018 Westover Summit: James Pethokoukis

The April 2018 Westover Summit featured James Pethokoukis, Dewitt Wallace Fellow at the American Enterprise Institute. Below is a replay of the luncheon.

Observations and Recommendations about the New Tax Act

– by Matt Beardwood, CFP®, Director of Wealth Planning

“Thinking is one thing no one has ever been able to tax.” – Charles Kettering*

It’s March Madness time and I’m not talking about basketball. I’m talking about the 2017 tax reporting season and it’s full on! By now you have received your W-2, corrected 1099s and K-1s (hopefully). You haven’t even seen your accountant yet and I’m already talking about the 2018 filing season? Yup, it’s true and what better time than now to start thinking and planning for the impact of the recently passed Tax Cuts & Jobs Act. Here are some thoughts to ponder:

2018 Tax Preview

Ask your accountant to run a mock 2018 return after you have filed your 2017 taxes. You can also use TurboTax’s TaxCaaster tool (I downloaded it for free from the App Store and ran a 2018 tax estimate in about 10 minutes) to forecast a 2018 refund or payment due based on the new laws. Please note: The IRS and state tax divisions are still working through interpretation of various provisions of the new law. The IRS plans to provide further guidance throughout the year. Expect some changes.

Withholding Review

The IRS came out with new withholding tables on January 11th and just released a revised W-4 form and calculator (You can find a link to the IRS website HERE). If you leave your W-4 as is, you could wind up withholding too little. Workers in higher tax brackets who receive large bonuses could see higher tax bills if they don’t adjust withholdings on “supplemental income.”

SALT Workaround

A significant change that could affect many taxpayers is the cap on state and local income tax (SALT) deductions. The deduction, which used to be unlimited, will be capped at $10,000 in 2018. The new law’s near-doubling of the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly does mean fewer will itemize, but residents of high-tax, high-income states could end up paying much more. States are busy devising workarounds to try and keep those residents from seeing a big spike in federal taxes next year or moving to a lower tax state. Strategies being explored include replacing state income taxes with an employer-side payroll tax and a scheme of tax credits for charitable donations made to state funds that support areas like education and health care. It’s unclear whether these attempts will prove administratively or legally feasible; I wouldn’t count on it.

Charitable “Bunching”

In an effort to get around new deductions limits (e.g. SALT), many folks who make regular charitable donations may bundle gifts in one year what they would have given over multiple years. For those who itemize, charitable donations remain deductible on federal returns and can help lift married taxpayers who file jointly above the $24,000 standard deduction hurdle. By putting these bundled donations into a donor-advised fund, individuals can take the deduction the year the money goes in and distribute the money to charity over multiple years. Having said that, there are numerous tax-advantaged giving strategies to consider and Westover has the experience and wisdom to help you choose the right one. Let’s talk.

Home Equity Loan Deductions

The deductibility of interest on home equity loans and lines of credit (HELOCs) is a big area of confusion. The new tax law lowered the amount on which interest expense on “acquisition indebtedness” could be deducted but eliminated the interest deduction on loans that are not used to buy, build or substantially improve a primary home (aka “home-equity indebtedness”). Caution: seek tax advice on this one. There are numerous caveats, grandfathered provisions, rules regarding “mixed-use mortgages” and partial deductions. Clear recordkeeping and documentation will be critical if you plan to take a deduction.

529 College Savings Plans

The new tax law expands the allowable use of tax-exempt 529 college savings plans for education costs from kindergarten through 12th grade. While some states automatically follow the federal code, others choose to decouple from certain parts of it.

In other words, the U.S. government may say you can use 529 money for K-12 expenses, however, your state may consider such a withdrawal as a non- qualified distribution. Confusing? Tell me about it. When I called my state tax department for clarification, they weren’t even sure what a 529 was. I’m hopeful more guidance will be coming out this summer. In the meantime, be careful.

Retirement Readiness Rundown

Does the tax law present any retirement strategies for consideration? Possibly. Withdrawals from tax-deferred retirement savings plans such as 401(k)s or traditional IRAs are considered “ordinary income” and will raise your taxable income, however, lower tax rates may make a Roth IRA conversion even more attractive than in the past. Pay some of the taxes now and take advantage of lower tax brackets while avoiding a potential “tax time bomb” when you are required to take required minimum distributions (RMDs) in retirement.

Maybe it’s true that you can’t tax thinking but thinking can certainly minimize taxes. I think Charles Kettering was on to something.

*Charles Franklin Kettering (August 29, 1876 – November 25, 1958) was an American inventor, engineer, businessman, and the holder of 186 patents. He was a founder of Delco and was head of research at General Motors from 1920 to 1947. Among his most widely used automotive developments were the electrical starting motor and leaded gasoline. In association with the DuPont Chemical Company, he was responsible for the invention of Freon refrigerant for refrigeration and air conditioning systems. At DuPont he also was responsible for the development of Duco lacquers and enamels, the first practical colored paints for mass-produced automobiles. In 1927, he founded the Kettering Foundation, a non-partisan research foundation.

© Westover Capital Advisors, LLC. All rights reserved.

A Chance Encounter

I just heard the story that Carson Wentz, the talented second-year quarterback of the Eagles, was diagnosed with a torn ACL to his left knee and is out for the season. That inspired me to write about an interaction between two people, strangers to each other, which I was told last summer.

This is a story about two things: the first is the beauty of living in Delaware, a tiny state where “everybody knows everybody.” As an example, Randy and I own a home in a neighborhood where a former U.S. Senator lives half a block away, where our state representative lives across the street from us and where a former Vice President lives literally no more than one-quarter of a mile away from the entrance to our development. People from large states can’t comprehend what this intimacy sometimes brings to us. This story is an example.

This is a story about two things: the first is the beauty of living in Delaware, a tiny state where “everybody knows everybody.” More importantly, this is also a story about character, and what is revealed about one’s heart.

More importantly, this is also a story about character, and what is revealed about one’s heart. I’m of the mind that one’s character is revealed when we think no one else is looking. It was told to me late this summer by my daughter Ann,

My granddaughter Sawyer Chilton, age 20, underwent ACL surgery on Monday, August 21st. It put an end to a promising two-sport hockey and lacrosse college career for this beautiful young student-athlete.

She and her mother, daughter Ann, went to Walgreens to pick up a prescription in the Greenville shopping center six days post-surgery on Sunday, August 27th. They parked by the front door. As they returned to their car they noticed that a car had pulled into the parking space parallel to theirs on their passenger side.

Sawyer was hopping on two crutches and had a cast mid-thigh to ankle which immobilized her right knee and prevented it from bending. She couldn’t maneuver herself into her car with the other car parked as it was. Seeing her predicament, the unknown driver backed up out of the space, thereby permitting Sawyer to hop onto the parking pavement and then crab-walk into the back seat. Sitting with her back to the rear-driver side door, she was able to extend her legs across the seats without bending her knee. The stranger then pulled his car back into the parking space.

Ann rolled down her passenger side window and thanked him for his thoughtfulness. Alone, dressed in shorts and a Wilmington Country Club polo shirt, the gray-haired senior walked one step to their open window. He said to Sawyer, “I see your cast on one knee and multiple scars on the other. You look like an athlete.”

In response, Sawyer told him that she had torn her left knee ACL once in high school as a junior, then again two years later in a non-contact drill before the hockey season of her freshman year at college. The cast he saw on her right knee was because this past spring she had torn that one in another non-contact drill before lacrosse season of her sophomore season. She told him that as a consequence of these three tears she was no longer medically cleared to participate in college athletics. The worst part was that she missed her teammates, their camaraderie, being a part of their teams.

Quietly listening to her story, he empathized. Then he lauded her for her determination to come back from the second ACL injury as a freshman and, especially, the rigorous and grueling 18-month rehab process she went through, only to be struck down once again. He mentioned that he had tried to play football at the University of Delaware “back in the day” but really “wasn’t as good as he thought he was”, and talked of the life lessons sports teaches all its participants no matter how gifted or ungifted they might be.

After more than a few seconds of silence and looking reflectively into the distance, he then whispered that he had a granddaughter who had torn her Achilles heel and still another who had torn the meniscus in one of her knees. Ann said to me, “Dad, his voice was quiet as a leaf on a pond.”

Sawyer told him that she was attending Washington College in Chestertown Maryland where she would return to opening day classes as a junior the very next day. He mentioned that he knew that former F.D.I.C. Chairwoman Shelia Bair had recently been its president and revealed that he’d spoken there on several occasions.

As he turned to go he extended his hand through the open window, asking her name. In response, he said “Hi Sawyer, I’m Joe Biden. I wish you well in school. I know that your knee will get better soon. Stay strong.” Then he walked into Walgreens.

At this time of year, my wish is that each of us should make it a point to reach out to a stranger and to extend our helping hand with an open heart.

Only Ann and Sawyer knew what had just transpired. Ann told me the concern that he expressed in those five minutes for Sawyer’s well-being was palpable. And it lifted a young lady’s spirits just when they needed it most.

No one was looking that Sunday afternoon when Joe Biden took to the time to reach out and engage a stranger. But in that encounter, his character was surely revealed.

At this time of year, my wish is that each of us should make it a point to reach out to a stranger and to extend our helping hand with an open heart. Best wishes for a joyous holiday season.

© Westover Capital Advisors, LLC. All rights reserved.